Month: December 2009

Following a report from the U.S. Department of Energy yesterday, showing a decline in crude oil supplies, oil prices shot up and are now being traded at over $74.00 a barrel. However, I will illustrate below that crude oil may very well be heading for a reversal. Forex traders can take advantage of this imminent downward movement by entering short positions at an excellent entry price.

• The technical indicators that are used are the Relative Strength Index (RSI), Slow Stochastic and MACD.

• Point 1: There is a “doji” candlestick that has formed on the chart, indicating that a reversal may take place.

• Point 2: The Slow Stochastic indicates a bearish cross, signaling that the next move may be in a downward direction.

• Point 3: The Relative Strength Index (RSI) indicates that the price of this commodity currently floats in the over-bought territory, signaling downward pressure.

• Point 4: The MACD indicates an impending bearish cross, which may signal a downward movement is going to occur in the near future.

Crude Oil 4-Hour Chart

Source: ForexYard

Following the optimistic forecast for the U.S. economy given by the Federal Reserve Bank (FED) on Wednesday, the U.S. Dollar continued to make serious gains against its major counterparts well into morning trading. The EUR/USD pair was trading at around the 1.4465 level this morning, a steep decline from only hours earlier.

Economic News

USD – Dollar Makes Big Gains Following FED Statement

The USD got another boost Wednesday evening after the Federal Reserve Bank (FED) issued a statement saying that there are definite signs that the American economy is on its way to recovery. While the FED stopped short of raising record low interest rates, the positive statement was enough to boost the Dollar against both the EUR and Yen.

Going into trading today, Dollar levels will most likely be effected by this weeks U.S. unemployment claims, set to be released at 13:30 GMT. With most analysts predicting a number around 465K, the news should be good for the greenback, as it would be relatively unchanged from last week’s figure. That being said, if the figure unexpectedly jumps and lands at around the 500K level, investors may lose faith in the pace of the American recovery. This may lead to a decline in the USD, and would result in positive gains for the EUR.

EUR – EUR Drops Below $1.4500

The EUR fell well below the psychologically important 1.4500 mark against the U.S. Dollar in early morning trading, and is currently trading around the 1.4465 level. The decline in value for the European currency can largely be attributed to continuous debt concerns among several Euro nations, as well as the upbeat news coming out of America.

Against the Yen, the EUR dropped in early morning trading, and is currently priced at 129.92. With most investors flocking to the safe haven currencies such as the Dollar and Yen, the EUR/JPY pair may decrease further today.

With no major news events regarding the Euro scheduled for today, traders will have to look to other sources to determine which way the troubled currency is headed. The U.S. unemployment figures are one indicator. If the figures come in as expected and investors are encouraged by America’s pace of recovery, the Euro will likely drop further in afternoon trading. On the other hand, the Euro does stand to make gains if the figures come in at above the forecasted number.

JPY – Yen Takes Losses Against the Dollar

The Yen was also negatively affected by the Dollar’s most recent gains and is currently being traded above 90.00 against the greenback. The Yen is looking better against the Euro, as levels fell to approximately 129.80 in early morning trading.

Looking ahead, the Yen will likely remain at its current levels, as the Japanese government is aiming to keep its value low in order to boost their export industry. That being said any negative economic indicators that may come out of the U.S. would likely lead to a positive impact on the JPY.

Crude Oil – Oil Prices Rise as Inventories Fall

Following a report from the U.S. Department of Energy showing a decline in crude oil supplies, prices shot up and are now being traded at over $74.00 a barrel. While analysts were predicting a decline in supplies, the published figure was well over a million more barrels then forecasted.

Further driving up oil prices was general instability in the Middle East, especially the continuing standoff with Iran over its nuclear program. Looking ahead, prices will likely remain at their current levels for some time, as it appears that no major breakthroughs with Iran are expected to occur in the near future. Traders should pay attention to any major news events coming out of the Middle East, as they are likely to affect the price of crude oil.

Technical News

EUR/USD

The EUR/USD cross has experienced a bearish trend for the past 2 weeks. However, it seems that this trend may be coming to an end. The RSI of the daily chart shows the pair floating in the over-sold territory, indicating that an upward correction will happen anytime soon. Going long with tight stops might be a wise choice.

GBP/USD

The price of this pair appears to be floating in the over-sold territory on the daily chart’s RSI indicating an upward correction may be imminent. The upward direction on the hourly chart’s Momentum oscillator also supports this notion. When the upward breach occurs, going long with tight stops appears to be preferable strategy.

USD/JPY

The bullish trend is loosing its steam and the pair seems to consolidate around the 90.10 level. The 4 hour chart’s RSI is already floating in an overbought territory suggesting that a recent upwards trend is loosing steam and a bearish correction is impending. Going short with tight stops might be a wise choice.

USD/CHF

The USD/CHF cross has been experiencing much bullish behavior in the past 2 weeks. However, there is much technical data that supports a bearish move for today. The RSI of the daily and 4-hour charts indicates that the pair floats in the overbought territory, leading to the conclusion that a downward correction is imminent. Going short with tight stops may turn out to pay off today.

The Wild Card – GBP/CHF

GBP/CHF sustained upward movement has finally pushed its price into the over-bought territory on the daily chart’s RSI. Not only that, but there actually appears to be a bearish cross on the Slow Stochastic pointing to an imminent downward correction. Forex traders have the opportunity to wait for the downward breach on the hourlies and go short in order to ride out the impending wave.

Forex Market Analysis provided by Forex Yard.

© 2006 by FxYard Ltd

Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.

Market Movers of the Day

Asia-Pacific

*Australia’s 3Q GDP worse than expected at 0.2%

Europe

*German PMI Services better than expected at 53.1

*German PMI Manufacturing better than forecasted at 53.1

*EU PMI Services better than expected at 53.7

*EU PMI Manufacturing better than forecasted at 51.6

*UK Jobless Claims Change better than estimated at -6.3K

*ILO Unemployment Rate lower than expected at 7.9%

*EU Core CPI worse than expected at 1.0%

Americas

*US CPI higher than expected at 1.8% annualized

*US Housing Starts worse than forecasted at 0.57M

*US EIA Crude Oil Stocks dropped 3.7M

*US Fed left interest rate unchanged at 0.25%

The Overall Sentiment

Equities

US stock markets rose as the Federal Reserve left benchmark interest rate unchanged and repeated its intention to maintain the current low level for an extended period of time. The S&P climbed 0.6% after the announcement but erased some gains to close with a modest advance of 0.1%. The tone of the Fed was optimistic, stating that the economy is gaining strength and specifying steps to start unwinding emergency measures. In Europe, the British FTSE 100 added 0.7% as the UK Jobless Claims dropped 6.3K last month and the Unemployment Rate fell for the first time since February 2008, showing encouraging signs about the economy starting to leave the recession behind. The German DAX advanced 1.6% as the PMI figures showed a better-than-expected gain, both in services and manufacturing sectors.

Forex

The Dollar strengthened as the Federal Reserve left rates unchanged at 0.25%. The market reacted in a volatile manner after the Fed released its statement, but as soon as traders came to the notion that rate hikes may occur earlier than expected from the optimistic tone of the Fed’s rhetoric, the dollar extended gains. With Greece raising concerns once again in the Euro-zone, having its credit rating downgraded, this time by Standard and Poor’s, the EUR/USD came close to breaking below the 1.45 level. Even falling after the Fed’s announcement, the Pound managed to close with a daily gain against the Greenback driven by positive sentiment on the drop in unemployment numbers. The Aussie dollar extended losses below 0.90 against its US counterpart on disappointing GDP figures that showed a 0.2% expansion in the third quarter, lower than market expectations. USD/JPY continued to strengthen but showed some reluctance to break the 90 level.

Commodities

Crude Oil rose sharply as the EIA weekly stockpiles report showed oil stocks fell 3.7 million barrels, more than the forecasted 2 million drop. Metals also gained, with Gold climbing close to the $1140 level in its biggest advance in two weeks and Silver rising to end around $17.70.

The Day Ahead

The day will start with New Zealand’s Business Confidence with an expected fall to 38.5 from a previous 43.4. Japan will release its Leading Economic index and the BoJ will start a two-day policy meeting that will end with the Target Rate Decision on Friday. UK Retail Sales numbers are forecasted to grow, assuming that the improvement in the labor sector affected consuming for the better. UK CBI Distributive Trades and Swiss ZEW Survey are also due for release during the European session. The Canadian CPI figures are expected to rise and for US Jobless Claims forecasts point to a 10K drop.

Technical Analysis

EUR/AUD DAILY

Bullish Scenario– The consolidation above 1.5950 could signal that the cross is gathering strength, confirming a double bottom formation.

Target A–1.6250

Target B–1.64

Bearish scenario– A break of 1.5950 downwards would generate a strong bearish swing, targeting the 1.58 support.

Target A-1.58

Target B–1.5620

Daily Forex Market Analysis provided by eToro

Disclaimer: Trading in the Foreign Exchange market might carry potential rewards, but also potential risks. You must be aware of the risks and are willing to accept them in order to trade in the foreign exchange market. Don’t trade with money you can’t afford to lose.

© 2009 eToro Blog.

Written by ForexCycle.com

After touching the upper border of the rising price channel on 4-hour chart, USDCHF pulled back from 1.0428. However, the fall is treated as consolidation of uptrend from 0.9959. As long as the channel support holds, one more rise towards 1.0500 is still possible after consolidation. Key support is located at 1.0345, below this level will indicate that a short term cycle top has been formed at 1.0428 level, and the rise from 0.9959 has completed.

By CountingPips.com

The U.S. Federal Open Market Committee concluded its monetary policy meeting by holding the U.S. interest rate steady at its record low level and by announcing the slowdown of its liquity and spending activities. The FOMC had cut the interest rate to the target range of 0 percent to 0.25 percent in December 2008 and today’s decision to keep the rate unchanged was widely expected by market forecasts.

The Fed statement on the economy said that “Information received since the Federal Open Market Committee met in November suggests that economic activity has continued to pick up and that the deterioration in the labor market is abating. The housing sector has shown some signs of improvement over recent months.” The Fed, despite the more optimistic tone, also maintained that “economic activity is likely to remain weak for a time”.

The Fed announced that the program of buying $1.25 trillion in mortgage-backed securities and up to $175 billion of agency debt in an effort to keep mortgage rates low and support the housing markets would start to be slowed down. The slower pace of purchases is intended to allow a “smooth transition” in the markets that are trying to get their own footing and that the end of the program will be at the conclusion of the first quarter of 2010.

The Fed reiterated that the special liquidity facilities that were announced in June will end on February 1, 2010 while also looking to close down temporary central bank liquidity swaps by the same date.

The raising of interest rates may be some time in coming as the Fed once again maintained the familiar phrase that interest rates would stay at low levels for “an extended period” as inflation has not become an issue.

By Fast Brokers – The USD/JPY is consolidating just below its highly psychological 90 level as investors await the Fed’s monetary policy decision this afternoon EST.  Today’s U.S. econ data printed about in line with analyst expectations while EU PMI and UK CCC data points outperformed.  However, besides considerable strength in the Pound today, the major Dollar pairs are moving sideways as investors anticipate the Fed.  That being said, investors have priced in a more hawkish Fed over the past couple weeks due to impressive U.S. employment and consumption data.  However, should the Fed downplay the recent performance of these positive data points and maintain its full commitment to a loose monetary policy then we may witness a pop in the risk trade, a negative catalyst for the USD/JPY.  On the other hand, should the Fed actually make its stance a little tighter then the FX markets could experience another wave of Dollar buying, likely a positive development for the USD/JPY.  Either way, the FX markets could be in for a bit of volatility over the next 24 hours as investors digest the Fed’s decision.  Meanwhile, the Japanese wire will remain quiet until Friday’s BoJ Press Conference, meaning the USD/JPY’s performance should follow the path of the Dollar for the time being.

Technically speaking, the USD/JPY is battling with the highly psychological 90 area once again, a worthy topside foe.  Furthermore, the USD/JPY faces multiple downtrend lines along with previous December highs.  As for the downside, the USD/JPY has multiple uptrend lines serving as technical cushions along with 12/14 and 12/09 lows.

Present Price: 89.74

Resistances: 89.78, 89.89, 90.01, 90.25, 90.39, 90.58

Supports: 89.35, 89.14, 88.99, 88.77, 88.60, 88.34

Psychological: 90, December Highs and Lows

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – Gold has continued to avoid a retest of the psychological $1100/oz level, finding support above 12/11 lows and our 4th tier uptrend line.  The precious metal is experiencing a bit of intraday strength after U.S. economic data printed in line with analyst estimates.  The EUR/USD and AUD/USD are continuing their consolidative patterns as the Cable pops in reaction to encouraging CCC data.  That being said, gold seems to be following the broad-based sideways movement of the Dollar as investors await the Fed’s monetary policy decision.  Although the Fed is expected to keep its monetary policy unchanged, any slight tightening of its monetary policy stance in response to recent unemployment and consumption data could yield Dollar strength and gold weakness.  However, if the Fed downplays the recent upturn in economic data and affirms its past monetary policy, then we may witness a bounce in gold and weakness in the Dollar.  Regardless gold and the FX markets could be in for a bit of volatility as investors digest today’s economic data along with the Fed’s upcoming decision.  Hence, investors should monitor activity in the FX markets, particularly in the EUR/USD and AUD/USD.  Any significant setbacks in these currency pairs could drag gold lower due to the precious metal’s negative correlation with the Dollar.

Technically speaking, gold has multiple uptrend lines serving as technical cushions along with 12/11, 12/9, 11/13, and 11/10 lows.  Furthermore, the psychological $1100/oz level could serve as a reliable technical support should it be tested.  As for the topside, gold faces topside technical barriers in the form of 12/11,12/9 and 12/7 highs along with the psychological $1150/oz and $1175/oz levels.

Present Price: $1130.60oz

Resistances: $1134.47/oz, $1141.42/oz, $1147.54/oz, $1152.45/oz, $1158.98/oz, $1164.29/oz

Supports: $1128.34/oz, $1123.03/oz, $1115.27/oz, $1110.77/oz, $1105.05/oz, $1100.15/oz

Psychological: $1100/oz, $1150/oz, $1175/oz

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The EUR/USD is strengthening a bit as investors await the Fed’s monetary policy decision later today.  EU Flash PMI printed positively mixed earlier in today’s session, indicating the recovery in services and manufacturing remains on track.  However, gains in the EUR/USD are being tempered by weaker than expected EU CPI data.  The Core CPI figure was particularly troubling since the 1% growth rate is the weakest we’ve seen since the inception of the economic crisis.  Hence, we aren’t seeing the pickup in prices in the EU as we’ve witnessed lately in the U.S. and UK, likely due to the EU’s tighter monetary policy.  That being said, the decline in EU CPI could discourage the ECB from removing its alternative liquidity measures too soon.  Investors are sending the EUR/GBP reeling lower in reaction to the combination of discouraging EU CPI and much better than expected UK CCC data.  Regardless, all eyes remain on the Fed and upcoming U.S. CPI and Building Permits data.  Should U.S. data print better than expected, we could witness an intraday reversal in the EUR/USD.  However, the Fed’s monetary policy statement will likely be the highlight of the session since investors will be looking to see if the central bank has turned hawkish in reaction to recent positive unemployment and consumption data.  If the Fed downplays recent data improvements and maintains its monetary policy stance as expected, investors may opt to buoy the EUR/USD and keep the currency pair above October lows.

Technically speaking, the EUR/USD found support on its psychological 1.45 level as we anticipated.  However, the currency pair is still trading well below our 2nd tier uptrend line, suggesting we could see a retracement towards our 1st tier uptrend line (off chart), which is sitting around 1.4415 right now, if conditions don’t improve soon.  The EUR/USD also has a technical cushion in the form of October lows.  As for the topside, the EUR/USD faces multiple downtrend lines along with technical barriers in the form of 12/14 and 12/9 highs.

Present Price: 1.4562

Resistances: 1.4573, 1.4588, 1.4600, 1.4617, 1.4634, 1.4647

Supports: 1.4556, 1.4528, 1.4514, 1.4501, 1.4483, 1.4467, 1.4444

Psychological: 1.45, 1.40, 1.50, October Lows

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Fast Brokers – The Cable is popping right now after the UK’s Claimant Count Change unexpectedly dropped by -6,300.  The Pound is outperforming in reaction to the positive employment data, as highlighted by a brisk pullback in the EUR/GBP.  Meanwhile, investors are awaiting the release of U.S. Building Permits along with its CPI data followed by the Fed’s monetary policy decision later in the afternoon.  Although the Fed is likely to keep its monetary policy unchanged, investors will be paying close attention to the Fed’s wording to monitor whether the central bank takes a more hawkish stance in light of positive developments in U.S. unemployment and consumption data.   Bernanke reiterated the Fed’s present commitment to its loose monetary policy the last time he spoke following encouraging employment data.  Hence, it could be a risk to expect the Fed will alter its stance less than two weeks later.  That being said, any unexpected action from the Fed would likely yield noticeable volatility due to the psychological influence of central banks on the FX markets.  Regardless, activity could pick up in the next 24-48 considering the wealth of data and news investors will be digesting.

Meanwhile, should upcoming U.S. data print mixed or negative the Cable could tack onto intraday gains since the argument from a tighter Fed monetary policy may lose some of its luster.  The UK will keep the data train rolling tomorrow with the release of key consumption data, including Retail Sales and CBI Realized Sales.  If UK consumption picks up faster than anticipated, this could be a positive catalyst for the Cable since investors may expect a more conservative monetary policy stance from the BoE.

Technically speaking, the Cable has created some breathing room between present price and our key 2nd tier uptrend line.  Our 2nd tier uptrend line runs through October lows, implying a retracement towards the 1.58-1.60 area should it give way.  Below our 2nd tier uptrend line the Cable does have our 1st tier uptrend line (off chart) serving as a technical cushion along with the psychological 1.60 level, September lows and October lows.  As for the topside, the Cable has been negated thus far today by our 1st tier downtrend line and faces multiple downtrend lines along with 12/9 and 12/7 highs.  Furthermore, the psychological 1.65 level could serve as a technical barrier should it be tested.

Present Price: 1.6356

Resistances: 1.6371, 1.6399, 1.6421, 1.6439, 1.6472, 1.6494

Supports: 1.6337, 1.6325, 1.6304, 1.6282, 1.6257, 1.6223

Psychological: 1.60, 1.65, September and October lows

Market Commentary provided by Fast Brokers.

Disclaimer: FastBrokers’ market commentary is provided for information purposes only and under no circumstances should be regardedneither as an investment advice nor as a solicitation or an offer to sell/buy any financial product. FastBrokers assumes no responsibility or liability from gains or losses incurred by the information herein contained.

Risk Disclosure: There is a substantial risk of loss in trading futures and foreign exchange. Please carefully review all risk disclosure documents before opening an account as these financial instruments are not appropriate for all investors.

By Sylvain Vervoort – In this article I will talk about the Relative Strength Indicator used as a leading indicator to show early price reversals. We will also look at the creation of a dynamic overbought and oversold level and the use of small M-and-W patterns, leading short term price reversals.

The Relative Strength Index (RSI) is a popular momentum oscillator. Momentum refers to the speed of change; oscillator means that the value of the RSI oscillates between two values (here 0 and 100). The RSI was introduced in 1978 by J. Welles Wilder. RSI measures the relation between the price bars with a higher closing price compared to the previous bar, and between the bars with a lower closing price compared to the previous price bar, over a given time period.

Originally, Wilder used a 14-days period on daily charts; this remains the standard and most widely used value today. The RSI is a leading indicator where tops and bottoms will be visible in the RSI before they show up on the price chart.

The standard 14-period RSI makes tops above 70, called the overbought area; when it bottoms below 30, it is called the oversold area. Many times new tops and bottoms show up in the RSI before they are visible on the price chart; however, a continuing uptrend or downtrend will keep the RSI in the overbought or oversold zone.  The RSI indicator can be used as part of the decision making process to open or close a position. Divergence signals between price and RSI are a trade confirmation, preferably together with other technical buy or sell signals. On the other hand, an RSI continuing to move within the overbought or oversold area can help you to hold on to an open position when other selling signals appear, that way avoiding unnecessary closing of a position.

Looking at the lows of the oscillator and comparing them with the lows in price, you can see 3 different situations:

When the price and oscillator make higher or equal bottoms, they converge. Until there is no other indication, the most probable price move is a continuation of the uptrend. When the oscillator creates a higher bottom while the price makes a lower bottom, they diverge. This is mostly found at the end of a downtrend, indicating an uptrend reversal. When the oscillator has a lower bottom while the price sets a higher bottom, they diverge. This is mostly found in a price uptrend after a price correction, indicating a continuation of the uptrend.

Looking at the highs of the oscillator and comparing them with highs in price, you can see 3 other situations:

When the price and the oscillator make equal or lower tops, they converge. Until there is no other indication, the most probable price move is a continuation of the downtrend. When the oscillator makes a lower top while price makes a higher top, they diverge. This is mostly found at the end of an uptrend, indicating a downtrend reversal. When the oscillator makes a higher top while price makes a lower top, they diverge. This is usually found in a price downtrend after a price up correction, indicating a continuation of the downtrend.

A divergence with a higher bottom in the RSI indicator and a lower bottom on the price chart is an indication for an uptrend reversal. On the other hand, a divergence with a higher top in the price chart and a lower top in the RSI indicator points to a downtrend reversal.

A hidden or inverse divergence with a lower bottom in the RSI and a higher bottom in price is most common found in an uptrend. There is normally not yet a divergence between the previous tops. The down correction is apparently just an intermediate correction for the previous uptrend. This hidden divergent move points in the direction of a continuation of the previous uptrend. You can use the divergent turning point as a price support level.

A hidden or inverse divergence with a higher top in the RSI and a lower top in price is most common found in a downtrend. There is mostly not yet a divergence between the previous bottoms. The up correction is apparently just an intermediate correction for the previous downtrend. This hidden divergent move points in the direction of a continuation of the previous downtrend. You can use the divergent turning point as a price resistance level.

The 30-70 fixed reference level used in the standard RSI is a disadvantage if you are using time periods other than the standard 14 bars. Using for example a 30-day RSI will show that the 30 and 70 levels are not reached anymore.

You can solve this by using a variable reference level. A simple way of achieving this is by using a standard-deviation value referenced to the median RSI 50 level in a predefined look-back period. You can setup the upper standard deviation to a value of 50 plus 1.5 times the standard deviation over a 100-day look-back period of the closing prices. That way with larger RSI time periods the reference level will move closer to the 50 level in the order 40 to 60, whereas for smaller period’s reference levels move farther away to the 20 and 80 levels. It is now easier to recognize overbought or oversold conditions with ANY RSI time period.

Small M-and-W shaped patterns are short time patterns visible in the overbought and oversold areas, or around the 50-reference of the RSI indicator. Small M-shaped patterns at the top and small W-shaped patterns at the bottom give reliable short-term price reversal signals. Preferably, they’ll incline in the direction of the reversal. The second leg of the M-shaped pattern does not move above the first leg. The second leg of the W-shaped pattern does not move below the first leg. M and W patterns are unrelated to convergences or divergences between the price and RSI indicator. They are more useful when there is a convergent move because they are at that moment in time, the only visible indicators of, at least, a short-term reversal.

The RSI indicator is most useful to detect price trend reversals based on normal or hidden divergences and using the M-and-W short term patterns in case of convergent price moves. Overbought and oversold areas can best be detected with an active standard deviation band. This setup is certainly one of the indicators that will help you to make better trading decisions.

About the Author

Want to learn more and see some examples about the use of the RSI? You can find a lot of learning material about basic technical analysis techniques for free at my website: http://stocata.org. Sylvain Vervoort is a trader and author with regular contributions in Stocks & Commodities magazine.